Closed economies often grow slower than open economies, as they only consume goods and services produced within their own country. The closest current example of a closed economy is Sudan. Sudan is not officially closed to trade but does not engage in much trade, as a percentage of its GDP. In 2020, it had the smallest percentage of goods and services imported and the third-smallest percentage of goods and services exported, as a percentage of GDP. This is due to South Sudan’s secession in 2011, which led to a 90% reduction in exports, massive unemployment, and low economic growth. Currently, Sudan’s share of exports in world trade is between 0.02% and 0.03%.
How Does a Closed Economy Work?
Trading allows countries to specialize and allocate resources to sectors and areas where they are most efficient. Countries can grow faster when they produce goods and services that have a lower opportunity cost, and trade for goods and services that are less efficient for them to produce. When countries specialize, it can have an effect across the globe. For example, as more manufacturing jobs have moved to China due to the lower cost of production, manufacturing jobs have decreased in the U.S. Politically, governments may feel pressure to save domestic jobs and protect them from outsourcing these jobs to other countries. A government may try to enact protectionist policies such as tariffs and quotas to restrict trade. While these policies may stop or slow down trade with an individual country, in order to be a completely closed economy, the government would have to ban trading from all outside economies. The country would then only rely on its own consumption, investment, and government spending for economic growth. As a result, if a country was unable to produce a good, it would not be able to get it elsewhere. Generally, it is difficult for an economy to remain closed, as not all materials are easily found in each country. For example, semiconductors are made from silicon, but only a handful of countries produce silicon. A country with no natural resource of silicon would need to trade with countries that have it, such as the U.S., China, and Russia. Without trade, that country would not have access to silicon, semiconductors, and, most importantly, the final goods that use semiconductors such as: cellphones, televisions, and computers.
Countries That Have a Closed Economy
While no country is officially closed to all trade, there are some countries that rely less on trade than others. In modern society, maintaining a closed economy is challenging, as raw materials such as crude oil, lumber, or natural gas play a key role in making final goods. Not every country has access to these raw, natural materials, thus forcing trade.
